Cash benefits or basic income—the next phase

Published: December 16, 2014 3:50 AM

Social policy reform in India is at a crucial and potentially wonderful point.

Social policy reform in India is at a crucial and potentially wonderful point. Let us accept that the paternalistic policies that predominated in the second half of the 20th century were mostly well-intentioned. And let us not waste more time in debating the extent to which they reduced poverty.

The fact is that now they are like the proverbial albatross, costing a vast amount with relatively little positive effect. It is time to move into the 21st century and develop policies and an overall system in tune with the emerging realities of a dynamic super economy.

We have just concluded two pilots of what we call basic income, a name chosen partly to try to cut through the ideological blitzkrieg that hit the debate on cash transfers. The pilots provided about 6,000 men, women and children in nine villages a modest monthly payment, paid into bank accounts that most managed to open without too much difficulty.

The payments were paid to each person unconditionally and universally, i.e. to everybody in the villages, not just the poorest. What happened to them in the succeeding 18 months was compared with what happened to similar people living in 12 other villages, through a modified randomised control trial.

One pragmatic objective was to test the sceptics’ claim that giving people cash would lead to waste, a spread of private bads (such as more alcohol or tobacco consumption) and a reduction in labour and work.

The evidence from evaluation surveys powerfully contradicted the sceptics’ assertion. We saw improvements in nutrition, health and healthcare, schooling and sanitation. The trouble with the benevolent policy-makers that have held sway for so long is that they are paternalistic and patronising. They have not trusted low-income Indians to make rational decisions for themselves, their families and their communities.

Anybody going to those villages before and after the 18 months should feel ashamed for thinking that ordinary people would waste the money and become indolent. Low-income people may be cowed by insecurity, ill-health and lack of resources. But they are not stupid. Given the means to change, they will devise ingenuous ways to do so. It is called the human condition.

These issues are covered in a book that has just come out. A plea in this article is that if a new National Development Reform Commission, or whatever it is called, is set up—and surely such a body is needed to help in the transformation of India in the 21st century—then a diligent search for a new system of social protection should be part of its mandate.

Cash transfers of some sort should be at the heart of those reflections. They are not a panacea or silver bullet. But they must be part of the new structure. In that, the authorities will have to make key decisions on fundamental principles.

Should cash benefits be targeted on the poor and only on the poor, or should they be universal, i.e. provided to everybody? The conventional view is that they should be targeted. This writer is among a growing number who believe that the base should be universal, i.e. provided to everyone, regardless of income. It would save money on administration, avoid poverty traps and strengthen social solidarity, as the pilots revealed.

A second pillar could be based on specific needs, such as disability, old-age frailty and motherhood. Targeting through means tests and poverty lines have not worked well anywhere in the world. Indeed, they are often regressive.

The next big question is whether cash transfers should be made conditional. If one is on the political left or on the right, the answer should be no. But globally social policy is being led down a dangerous road. The trouble is sophisticated research can reveal that conditions “work”.

For instance, giving cash to people only if they send their children to school for, say, 80% of the time may raise school attendance by more than schemes that give the same benefits without imposing that condition. Our whiz-kid behavioural economists would then think up another condition, and then another, each time chipping away at people’s freedom to make choices. This is precisely what is happening. So, there are schemes that offer benefits only if a woman has a sterilisation after a second child. Where do you stop?

We are in danger of marching into an era of social engineering. Suppose a parent thinks there is no point in forcing her sickly teenager to go to school because the teachers are rarely there, or because poor sanitation might worsen her condition. Would it be fair to penalise the mother if she does not or cannot force her child to school?

After all, if there are conditional cash transfers, the authorities would have to back them up with sanctions. Many unfair decisions would follow. And, of course, in Indian (and other) conditions, there would be ample scope for intermediary corruption.

The only morally safe condition is that everybody should obey the law, and that should apply equally to all groups. However, there is very good news. Unconditional cash transfer schemes, paid universally and individually, do fine.

I would plead with whoever becomes a member of the new Commission to draw up an ethical code at the outset to determine what should be regarded as legitimate. They will then be in a position to construct a 21st century system that is equitable, efficient and emancipatory. What Commission members should be most excited about is that, if cash transfers are well designed, they can be a powerful instrument for improving welfare, equity, growth and freedom. The Commission will have a great opportunity to transform Indian society for the better.

By Guy StandingGuy Standing is professor of Development Studies, School of Oriental and African Studies, University of London